Cost/Schedule Controls - Contractor Planning for Fixed-Price Construction (Archived)

RT-006c Topic Summary
RT 006c

Overview

Construction is unique when compared to manufacturing, process, distribution, transportation, and other industries. Each construction project is different: most contracts are awarded based on a competitive bidding or selection process; projects usually must be planned and executed under tight schedules; the workforce is transient, heterogeneous, and involves many crafts; union contractors may be dealing with several unions; much of the work is subject to weather; a tremendous variety of materials and equipment must be handled and managed; and construction workers are continually working themselves out of a job. These unique attributes present an extreme management and planning challenge.

Fixed-price contracting for construction is a common contracting strategy for project owners. Occasionally construction contracts are negotiated, but more often competitively bid. For competitively bid projects, a number of contractors are provided identical sets of drawings, specifications and other contract requirements, and given a period of time to prepare pricing and other submittals. Eventually, the contract is awarded to the selected contractor followed by a notice-to-proceed. The time allowed to prepare the bid/proposal is often short, and the time between contract award and expected mobilization date can be equally short. Yet the contractor is expected to meet all bidding requirements and to have final control schedules, procedures, and other control documentation available for client review soon after contract award. Given these challenges, detailed planning is essential if the contractor’s and owner’s goals are to be successfully achieved.

Pre-mobilization planning by a contractor for competitively bid, fixed-price construction contracts is the subject of this publication. Detailed planning is required from the time a contractor receives a set of bidding documents or request for proposal until resources are mobilized to execute the work. The research introduces the planning process and discusses the characteristics of fixed-price construction including the duties and obligations of the contractor and owner. Key considerations, estimating principles, and planning techniques are discussed to illustrate the importance of managing the execution risks associated with fixed-price construction projects. The ultimate goal here is the definition of a planning structure which best:

  1. Assures development of an accurate cost proposal and other bid submittals; and
  2. Establishes the framework for rapid conversion of preliminary plans into achievable final plans after contract award.

Contractor Planning for Fixed-Price Construction is part of a group of research conducted by CII in the over-arching area of Cost/Schedule published in 1985-1990.

Key Findings and Implementation Tools

1 : Planning Process

Good planning is an essential element for successful projects and successful companies. Without a plan, there is no basis for control. Planning is essential for establishing a base line that allows for positive project control and change documentation. Four levels of management planning described in the research.

(RS6-4, p. 5)

  • Policy Planning
  • Strategic Planning
  • Tactical Planning
  • Operational Planning
Reference: (RS6-4)

2 : Planning Integration

Planning facilitates the integration of the estimate, schedule, and other functional planning into a total control plan that can be used without reformatting during construction. (RS6-4, p. 11)
Reference: (RS6-4)

3 : Planning Culture

Good planning begins with the establishment of a planning culture in a company. This culture recognizes that planning is a team effort involving management at all levels. (RS6-4, p. 29)
Reference: (RS6-4)

4 : Planning for Fixed Price Contracts

Among construction contract types, the most challenging is the fixed price contract. The contractor has the burden of determining the full scope of the project in terms of items with cost implications, and the burden of identifying and evaluating project risks. (RS6-4, p. 29)
Reference: (RS6-4)

5 : Planning Milestones

In planning a fixed-price construction project, the contractor faces two milestones. First is the bid due date at which time the pricing and other bid submittals must be complete. Second is the mobilization date at which time planning must be complete enough to enable efficient initiation of construction. These two milestones must be treated as successive events in a chain of planning phases, each phase building upon and refining the planning of the previous phase. (RS6-4, p. 29)
Reference: (RS6-4)

6 : Planning Summary

Involvement of the field project manager in the initial estimating process helps bridge the planning gap between bidding the job and mobilizing to execute the work. This may not be possible, and therefore some positive method must be employed to convey to the actual field project manager and other senior project personnel the key provisions of the contract, considerations and decisions made during the planning process, and any management guidance that might influence the approach to managing the work. (RS6-4, p. 27)
Reference: (RS6-4)

7 : Implementation Tool #1

Project Manager Letter of Instructions – Serves as a compilation of information, strategy, and instruction for project manager responsible for the project/contract.

Project Execution Plan – Planning applied to fixed-price construction that includes work breakdown, cost breakdown structure, project schedule, subcontracting plan, organization structure, responsibility matrix, etc. (RS6-4, p.12)

Reference: (RS6-4)

Key Performance Indicators

Improved cost, Improved schedule

Research Publications

Contractor Planning for Fixed-Price Construction - RS6-4

Publication Date: 05/1987 Type: Research Summary Pages: 36 Status: Archived Tool


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